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FCC Reaches No Conclusion on State of Competition in Video Market

In its seventeenth annual report to Congress on the competitive state of the U.S. video services sector, the FCC repeated its approach to last year’s report by declining to state whether the video marketplace is competitive. The report, issued last Friday, nevertheless points to a continuing decline in households that subscribe to cable-based multichannel video program distributors (MVPDs). The report also emphasizes “the continuing development, and consumer usage, of time and location shifted viewing of video programming, the expansion of digital and high definition programming, and the progress of the online video industry” as the most significant trends to impact the industry since the publication of the sixteenth annual report.

Based on marketplace data that covers the 2014 calendar year, the report depicts a slight, but noteworthy decline in total MVPD households from 101.7 million to 101.6 million, with nearly all the losses coming from the cable MVPD category. While cable MVPD households fell from 55.1 million to 53.7 million during the period in question, subscribership to telcobased MVPDs rose from 11.8 million to 13.2 million to make up for the cable shortfall. There was no discernable change in the number of satellite MVPD households during 2014.

Despite the decline in cable MVPD subscribership, the report contends that “MVPDs continue to increase video revenue, in part, by raising the prices charged for video services.” Although cable and direct broadcast satellite MVPD revenues rose by 1.3 percent and 5.2 percent, respectively, during 2014, the report stipulates that additional revenues have failed “to keep up with increased MVPD costs, especially programming costs,” as evidenced by a 1.9% decline in average video profit margins by the top three cable MVPDs. Meanwhile, as it cites “a variety of mechanisms” used by MVPDs and broadcasters “to respond to consumers’ desire to watch video on a time-shifted basis, either on television sets or on other screens,” the report spotlights Nielsen Reports data showing an uptick (9.8% to 9.9%) in the percentage of U.S. households that rely exclusively on over-the-air television broadcasting. Figures provided by the National Association of Broadcasters further indicate that 21.9% of U.S. households have at least one television set that is used exclusively for over-the-air programming.

Unlike previous FCC reports on MVPD competition that were voted on by the agency’s commissioners, Friday’s report was adopted under delegated authority by the FCC Media Bureau. While staff members of the Media Bureau and the office of FCC Chairman Tom Wheeler offered no comment, FCC Commissioners Ajit Pai and Michael O’Rielly protested the decision process in a joint statement. Emphasizing that Congress has vested the FCC “with the duty to provide an annual report on the status of competition in the market for the delivery of video programming” Pai and O’Reilly questioned: “who’s afraid of a Commission vote?”